Good post, as usual. I'm too afraid to make specific trades in anything. I do like to imagine worst case scenarios when it comes to Fed policy, because memories of the 2008 debacle are still fresh in my mind.
The most obvious Worst Case is that the Fed continues to raise rates through the end of this year and into the next, causing a real recession going into the election cycle. I put odds on that of about 50% which is higher than it should be. A continuation of this Worst Case is regardless of which political party wins, the Fed starts cutting too late and manages a repeat of the Great Recession. I put odds of that happening at less than 25%--partly because there's no "bubble" in any sector of the economy.
I guess what I'm saying is that the Fed got lucky in one direction, and might get unlucky in the other direction. Maybe I'm just pessimistic this morning.
"Food disinflation pulls down headline inflation in Singapore, despite new pockets of price pressure buildup
Inflation dropped to 4.5% in June, from 5.1% in May, marginally above the consensus, 4.4%. As with Malaysia, food disinflation was the main contributor to the fall in headline inflation. Food inflation excluding serving services fell to 5.1% in June, from 6.8% in May. Once again, base effects were helpful but it should noted that on a m/m basis, food prices across all subcategories dropped, barring diary products and non-alcoholic beverages. Food serving services remained relatively elevated at 6.3%, lead by a 8.1% increase in fast food prices. The influence of subdued food prices on food service outlets appears to be offset by higher rents and a general stickiness in higher hawker centre prices, which are still increasing on a m/m basis.
Housing and accommodation inflation increased by 4.3% in June, down marginally from 4.4% in May. Accommodation costs remained stubbornly high, despite higher base effects as a housing shortage, which was exacerbated by delays within the construction sector due to the pandemic, continued to put upward pressure on rentals. "
---30---
It looks like economies with housing shortages can be plagued with "stubborn" inflation.
Well, yes, inelastic supply of housing will result in continuously escalating rents, as incomes rise, since demand is somewhat inelastic also. That prints as inflation.
There is an offset, called lower living standards, that is doubling up in apartments (now common in Los Angeles) or living in former warehouses, or living in RVs. Lower living standards.
The entire macroeconomics profession was trained to think about fiscal and monetary policies, and have extended (apparently eternal) debates thereof. Even though they cannot agree on the premises of the debate (QE and concurrent federal deficits---actually money-financed fiscal programs or not?).
But housing is now a central feature of inflation and lower living standards in so many economies and regional around the world.
You know, the real world sticks its camel nose (and perhaps head and front limbs) into the theory tent.
I'd love to be a fly on the wall for a conversation between you and Arnold Kling:
https://arnoldkling.substack.com/p/disinflation-might-be-transitory?utm_source=post-email-title&publication_id=338673&post_id=135309525&isFreemail=true&utm_medium=email
Good post, as usual. I'm too afraid to make specific trades in anything. I do like to imagine worst case scenarios when it comes to Fed policy, because memories of the 2008 debacle are still fresh in my mind.
The most obvious Worst Case is that the Fed continues to raise rates through the end of this year and into the next, causing a real recession going into the election cycle. I put odds on that of about 50% which is higher than it should be. A continuation of this Worst Case is regardless of which political party wins, the Fed starts cutting too late and manages a repeat of the Great Recession. I put odds of that happening at less than 25%--partly because there's no "bubble" in any sector of the economy.
I guess what I'm saying is that the Fed got lucky in one direction, and might get unlucky in the other direction. Maybe I'm just pessimistic this morning.
Haha. I shorted oil back when it was ~$140 a barrel. How could I lose?
I lost everything. It went to $147.
BTW, I will try to find the info, but Singapore is dealing with inflation similar to the US, a little sticky---and they have housing shortages.
Interesting topic.
Stickiness in the US may be a housing thing, as much as monetary policy thing.
From Pantheon Macroeconomics:
"Food disinflation pulls down headline inflation in Singapore, despite new pockets of price pressure buildup
Inflation dropped to 4.5% in June, from 5.1% in May, marginally above the consensus, 4.4%. As with Malaysia, food disinflation was the main contributor to the fall in headline inflation. Food inflation excluding serving services fell to 5.1% in June, from 6.8% in May. Once again, base effects were helpful but it should noted that on a m/m basis, food prices across all subcategories dropped, barring diary products and non-alcoholic beverages. Food serving services remained relatively elevated at 6.3%, lead by a 8.1% increase in fast food prices. The influence of subdued food prices on food service outlets appears to be offset by higher rents and a general stickiness in higher hawker centre prices, which are still increasing on a m/m basis.
Housing and accommodation inflation increased by 4.3% in June, down marginally from 4.4% in May. Accommodation costs remained stubbornly high, despite higher base effects as a housing shortage, which was exacerbated by delays within the construction sector due to the pandemic, continued to put upward pressure on rentals. "
---30---
It looks like economies with housing shortages can be plagued with "stubborn" inflation.
Well, yes, inelastic supply of housing will result in continuously escalating rents, as incomes rise, since demand is somewhat inelastic also. That prints as inflation.
There is an offset, called lower living standards, that is doubling up in apartments (now common in Los Angeles) or living in former warehouses, or living in RVs. Lower living standards.
The entire macroeconomics profession was trained to think about fiscal and monetary policies, and have extended (apparently eternal) debates thereof. Even though they cannot agree on the premises of the debate (QE and concurrent federal deficits---actually money-financed fiscal programs or not?).
But housing is now a central feature of inflation and lower living standards in so many economies and regional around the world.
You know, the real world sticks its camel nose (and perhaps head and front limbs) into the theory tent.